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The Pros And Cons Of Recession

Decent Essays
The business cycle of the GDP rising and falling all over again is surely how the economy behaves and since today we have not been able to explain exactly why and how to stop it. Business cycles are composed by 4 different periods; expansion, peak, contraction and trough. Every period of economic growth and prosperity, is usually followed by a recession. The duration of each cycle varies sometimes 8 years or even 10 but the order is always the same. Recession are very harmful for the standards of living and economists try at all cause to avoid them (Boyes & Melvin, 2016). Recession is defined as a period of about six months that economy declines significantly. According to Amadeo, there are 5 economic indicators that will drop when a recession take place; real GDP,…show more content…
Big businesses would try to lower their expenses by stop hiring or even cut the personal, which we saw previously with unemployment. Furthermore, businesses would cut costs by stop buying new equipment or eliminate advertisings which eventually would affect big and small companies involved as well. And that is how the cycle begins. Other problem companies and industries face are that because of the lousy economy recession carries, costumers might be delayed with their debts to the company. Consequently, the company pays late their own debts which can result in reducing the valuation of the corporation's debt and its ability to obtain financing. The companies that cannot pay their loans may enter in reorganization or get out of business. On the other hand, small businesses get yet worse than big businesses. Without big cash reserves and capital assets it makes it harder for these businesses to survive the recession (Davis, 2016). In conclusion, that is how many businesses get in bankrupt during the recessions. In the chart below is the data about the rate of bankruptcies in the United
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